Federal Judge Rules Against SEC in Blockchain ICO Case

Judge Gonzalo Curiel of the Southern District of California recently denied the Securities and Exchange Commission’s (“SEC”) motion for a preliminary injunction against Blockvest, a Blockchain company, when he found that the SEC had not shown that Blockvest had violated US Securities Laws.  The SEC’s complaint alleged that Blockvest had engaged in the unregistered sale of securities in violation of Sections 5(a) and 5(c) of the Securities Act when it conducted its preliminary Initial Coin Offering (“ICO”).  It also alleged fraud in the offer and sale of these securities.  Blockvest protested this characterization and argued that it had only offered its Coin to 32 “testers” who collectively had put less than $10,000 worth of Bitcoin and Ethereum into the Blockvest Exchange.  As such, the testers did not reasonably expect to profit from the platform.  Judge Curiel agreed with Blockvest.   

In making this decision, Judge Curiel ruled that the SEC had failed to show that the investors bought into the offering with the expectation of making a profit– as required by the three-part “Howey” test for the definition of a security under the landmark 1946 U.S. Supreme Court decision in SEC v. W.J. Howey Co.  In response to this decision, government regulators and similarly situated plaintiffs will need to consider how the ICO was conducted to determine if there are truly Securities Law violations.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, shareholder derivative actions, merger litigation, antitrust, employment law, wage and hour, and consumer class actions.  The firm is headquartered in New York, and maintains offices in Delaware, Pennsylvania, California, and Georgia.

Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees.

To contact the author of this blog or the offices of Faruqi & Faruqi, please call us at (877) 476-7797.

About Dillon Hagius

Dillon Hagius’s practice is focused on securities litigation.  Dillon is an associate in the firm’s New York office.

Posted by Dillon Hagius

Associate at Faruqi & Faruqi, LLP
New York Office
Tel: (212) 983-9330
Fax: (212) 983-9331
Email: dhagius@faruqilaw.com

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